Overland Park / KS. (npc) NPC International Inc. reported results for its second fiscal quarter ended July 01, 2014.
Second Quarter Highlights
- Pizza Hut comparable store sales decreased (5,6) percent rolling over a decrease of (3,7) percent last year.
- Adjusted Ebitda was 20,9 MM USD; a decline of 12,3 MM USD from the prior year.
- The Company generated a net loss of (1,4) MM USD compared to net income of 8,1 MM USD last year.
- An incremental term loan borrowing of 40,0 MM USD was drawn during the quarter to finance the 56-unit Wendy´s acquisition completed in July subsequent to quarter end.
- Comparable store sales decreased (5.1) percent rolling over a decrease of (2.9) percent last year.
- Adjusted Ebitda of 49,9 MM USD was 21,9 MM USD or 30 percent below last year.
- Net income was 1,6 MM USD, a decrease of 19,8 MM USD from last year.
- Cash balances increased to 48,3 MM USD, primarily as a result of the 40,0 MM USD incremental term loan financing completed during the quarter.
- Our leverage ratio was 4,52 X Consolidated Ebitda, net of allowable cash balances of 45,3 MM USD.
NPC´s President and CEO Jim Schwartz said, «Clearly this was a very disappointing quarter for our Pizza Hut business. Extreme commodity pressure and soft comparable store sales combined to place significant pressure on our operating margins as we foreshadowed in our first quarter communications. Commodity inflation alone contributed roughly 50 percent to our year-over-year Ebitda shortfall as our second quarter was the anticipated quarterly commodity inflation «ceiling» for 2014. Fortunately, as a partial offset, our Wendy´s business continues to perform well and is delivering upon our pre-acquisition expectations.
During the initial six weeks of our third quarter our Pizza Hut business is benefiting from changes in promotional activities that are favourably impacting our margins and top line performance relative to our second quarter. This sequential improvement in these operating metrics is expected to improve our year-over-year Ebitda trends in our third quarter relative to our results to-date.
We are actively working in lock-step with Pizza Hut brand leadership to launch a major new advertising positioning along with the innovation designed to better connect with millennials and separate us from competition. Fortunately, we have a strong platform from which to launch this advertising positioning. Pizza Hut remains the clear category share leader and is the beneficiary of a leveragable 56 year heritage of quality, innovation and service. In addition, the brand is committed to steer the positioning and make the necessary infrastructure and technology investments that is required to implement the strategy changes.
On the Wendy´s front, we continue to be pleased with our investment in the Wendy´s brand, which continues to operate at a «Cut Above» its competition. In July we completed a 56-unit acquisition from a franchisee in North Carolina, primarily in the Winston-Salem and Greensboro metropolitan areas. This has historically been a strong market for the Wendy´s brand and provides NPC another toehold in the Wendy´s system for future expansion. Our initial investment in the Wendy´s business was made in July of last year. Since that time we have made four acquisitions in the brand and we are now operating 145 stores with annual sales of approximately 195 million USD, representing almost 20 percent of our consolidated net product sales on a pro forma basis. Obviously we are pleased with this growth, the associated benefits of diversification across two iconic brands and the remaining opportunities for continued growth.
During the quarter, we drew upon our incremental term loan to finance our recent Wendy´s acquisition and to maintain a strong liquidity profile. Despite soft comparable store sales and inflationary pressures, our two brands maintain strong cash flow characteristics that we will continue to leverage, further bolstering our liquidity. Despite our challenges in the Pizza Hut brand, we are confident that brand leadership is addressing those challenges and we look forward to updating you on the progress of those strategies after the much anticipated brand re-launch».
The Company is a wholly-owned subsidiary of NPC Restaurant Holdings LLC, which has guaranteed the Company´s 10,50 percent Senior Notes due 2020. As a result of its guaranty, the Holding is required to file reports with the Securities and Exchange Commission which include consolidated financial statements of Parent and its subsidiaries (including the Company). Parent´s only material asset is all of the stock of the Company. The quarterly financial statements and Management´s Discussion and Analysis of Financial Condition and Results of Operations for Parent and the Company on a consolidated basis are set forth in Parent´s Form 10-Q for the fiscal quarter ended July 01, 2014 which can be accessed at sec.gov.